A Fed meeting with no surprises has led the market back into its current trend. Gold and Oil are back on the rise as well as the US stock market. The next issues to possibly change this trend would be the heating up of the Debt/Austerity talks in Congress, the Japanese govt. taking steps toward weakening their currency, and the Euro crisis getting worthy attention.
Greek bonds are above 25% with no signs of concerns in the European currency and equity markets. This concerns me that the current threat of write downs and how that would trickle through the European banking system is going largely ignored. I would pare back any exposure that you may have in European markets despite the recent performance, what the market is doing and saying is diverging.
With Monday being a light day and the Fed Minutes and the first press conference due on Wednesday, I would expect a leveling off the markets over the next few days. It could be an opportunity to take off some rick and wait for news out from the Fed. I will be watching closely to determine the FOMC’s position on inflation and monetary tightening in the future. I believe this start to tightening will be a major shift in both the direction of many asset classes.
The Euro has recovered from its recent selloff spectacularly today despite the talks of Greece having trouble with there debt payments. I think this is more a weak dollar move then a strong Euro but the shared currency is stronger across several currencies (and the dollar is generally weaker). I would not be too optimistic about the Euro zone right now because of the growing resentment of the bailouts and the need for more help not too far off. In the mean time there are plenty of concerns with US Govt. debt as well which could spark selloffs in the US Markets as debt becomes a concern internationally.
S&P put a negative outlook on US debt this morning knocking down futures and sparking continued selling into the first hour of trading. I see the call by S&P as force of hand by US Lawmakers; it shows that there are immediate and real consequences for the issues with debt in the country. Should lawmakers now be inspired to work together and create a meaningful deal, times like this could prove to be buying opportunities for stocks and the dollar and selling opportunities for gold and silver. The longer Washington hinders the necessary budget cuts needed; there will surly be more days like today.
There were a lot of articles written over the weekend about the amount that the Chinese government has amassed in currency reserves. With over $3trillion in reserves, wherever the country decides to invest, it can truly change the marketplace. I will be looking for what the government may do with all this cash in relation to the ongoing debt crises in Europe (potential buying opportunity) and the debates in Washington over how to balance the budget (potential reason for China to diversify more).
Read an interesting article about how the sovereign debt problems in Europe will not affect the German government because they do not hold much of the PIIGS debt. Though they do hold the banks debt from some of these countries; which in turn holds the government’s debt. This could create a domino effect should the countries with debt problems force the bond holder of their debt to take a haircut because it will lover the capital reserves of the banks within the countries that hold these assets and force them to raise capital, or worse. This is when the problems of the PIIGS could get into the German banking system, something interesting to keep in mind.
With Japan’s situation fully coming to light, the supply concerns are turning into genuine supply shortages around the world. It would be beneficial to see the long term shifts in supply management from this. Should one expect a general increase in inventories or a more diverse, closer to home, supply chain?
Since the flight to safety after the tsunami in Japan, the markets have quickly gotten back into the search for high yielding assets. The rise in carry trade pairs and high yield bonds are an interesting sign that yields are becoming more of a concern to investors. With the Eurozone raising rates for the first time in years, and China raising rates almost monthly, the changing landscape in yields will be something to look after.